Circular RUNOR 1-114: Regulation of the Third Paragraph of Article 41 of Law No. 21.526 on Financial Entities, as Modified by Law No. 24.144

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
__________________________________________________________________ COMUNICACION " A " 2124 22/07/93 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
RUNOR 1 - 114.
Regulation of the third paragraph of the new text of Article 41 of Law No. 21.526 on Financial En- tities, according to the modification intro- duced by Article 3° of Law No.
24.144.

We address you to inform you that the Board of Directors of this Institution has sanctioned Resolution No. 231, dated May 15, 1993, which provides:

"1. The modification established in Article 41 of Law No.
21.526 by Article 3° of Law No. 24.144, regarding the
imposition of a fine, shall apply to financial infractions that occur from October 31, 1992.

2. The fine sanction provided by the aforementioned Article 41
   according to its original text shall be applicable to the resolution of all pending proceedings and to those ordered regarding infractions occurring up to October 30, 1992, due to being the law in force at the time of the acts.

3. The Regulation of the third paragraph of Article 41 of
   Law No. 21.526, according to the reform introduced by
   Article 3° of Law No. 24.144, regarding the application of
   the fine sanction, is approved, which contains the ANNEX to the present Resolution."

We remain, very respectfully,

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
Juan Carlos Isi Raúl O. Planes
Submanager of Standards Manager of for Financial Entities Open Market

+--------------------------------------------------+-------------+ I ANNEX TO THE BOARD RESOLUTION 231 IAnnex to the I I DATED 15.5.93 ICom. "A" 2124I +--------------------------------------------------+-------------+ REGULATION OF THE WEIGHTING FACTORS FOR THE DETER- MINATION OF THE FINE PENALTY, PRESCRIBED IN THE THIRD PA- RAGRAPH OF THE NEW TEXT OF ARTICLE 41 OF LAW NO. 21.526, ACCORDING TO THE MODIFICATION INTRODUCED BY ARTICLE 3° OF THE LAW NO. 24.144.

1. Complying with the mentioned legal norm, it is necessary to regulate the manner in which the fine sanction shall be fixed. To this end, it is necessary not only to determine the valuation to be attributed to each of the factors listed in the third paragraph of Article 41, but it is also convenient to define them conceptually, taking into account that they are aimed at grading sanctions applicable to infractions derived from an activity of singular characteristics such as finance.

2. Consequently, it is established:
   2.1. To weigh the "magnitude of the infraction", the following shall be taken into account:
   a) When the infraction consists of facts susceptible of monetary appreciation, the total amount reached by the infringing operations during the entire period in which it occurs; b) When the transgressions, due to their characteristics, are not measurable in money, to determine their magnitude, the following guidelines shall be evaluated:
   1) Relevance of the unfulfilled norm within the system of norms regulating financial activity, 2) extension of the period in which it occurred, 3) whether there was continuity or isolated cases of non-compliance within the verified period, 4) number of particular cases constituting the regulatory non-compliance;

2.2. Harm caused to third parties:
Third parties, for the purposes of grading the penalty, shall be considered as natural or legal persons who had a relationship with the investigated entity, or the subject of the investigation when it is excluded, regarding strictly financial activity, including this Central Bank; quantifying the harm based on the monetary sums that, for any concept, within the characteristics of the infringing conduct, the investigated entity or subject of the investigation has failed to pay or received in excess;

2.3. Benefit generated for the infringer:
To evaluate this, attention shall be paid to the verification of the benefit obtained due to the configuration of the infraction, both for the financial entity and for the natural persons responsible for the transgression or for the natural or legal persons linked to them, according to the norms that this Central Bank has established on the subject or issues in the future, determining the monetary amount of said benefit in each particular case;

2.4. Operational volume of the infringer:
Since, regarding financial entities in the system, this weighting factor could overlap or be confused with the quantification of the magnitude of the infraction susceptible to monetary appreciation, it is advisable to reserve its measurement, since in general it is one of the few elements of judgment available in these cases, to fix the sanction in proceedings ordered upon detecting the exercise of unauthorized financial intermediation. This without prejudice to using, in the particular case, the remaining factors if they can be determined;

2.5. Financial liability of the entity:
This element of appreciation of the financial entity's situation, which is the computable financial liability, which each entity declares in information provided to this Institution, is a primary means to adequately fix the fine sanction.

+--------------------------------------------------+-------------+ I ANNEX TO THE BOARD RESOLUTION 231 IAnnex to the I I DATED 15.5.93 ICom. "A" 2124I +--------------------------------------------------+-------------+ To this effect, the amount declared by the financial entity at the time the sanction is graded or the highest declared during the entire period in which the infringing acts occurred, whichever is higher, shall be taken.

3. Procedure to grade the fine to be applied to financial entities or to natural or legal persons responsible for the infractions reproached in the proceedings.
   3.1. In the first place, the fine imposed for each of the charges individually shall be determined, doing so separately with respect to each of the responsible parties -taking into account the characteristics of the individual attribution of responsibility- based on the sum of the amounts resulting from the evaluation of factors 2.1. a) to 2.4. as applicable;
   3.2. Regarding charges that, due to their characteristics, are provided for in point 2.1. b), after analyzing the guidelines established there, the amount of the fine shall be fixed, in the most serious case, which shall not exceed 1% of the computable financial liability obtained according to the modalities indicated in point 2.5.;
   3.3. Once the amount of the fine that can be imposed for each of the particular charges of the proceeding is determined, those partial amounts shall be summed to establish the total amount of the fine that, as a consequence of the proceeding, must be attributed to the financial entity and to each of the natural or legal persons found responsible; however, the fixing of the final amount of the monetary sanction shall be limited according to the following circumstances:
   a) When the infringing acts have not altered the normal functioning of the financial entity, the amount of the fine shall not exceed 5% of the highest computable financial liability of the financial entity, according to point 2.5., except in cases where harm to third parties or benefit derived from the infraction is weighed, in which case said percentage may be increased to 10%; b) When the infringing acts have caused serious difficulties to the financial entity, which could subsequently be overcome through regularization and health plans; the sanction on the entity shall not exceed the percentage caps established in the previous section; instead, the same shall be aggravated with respect to the persons responsible for those transgressions, who shall be subject to a fine whose maximum shall equal 15% of the highest computable financial liability declared by the entity in the terms of point 2.5.; c) when the infringing acts cause the cessation of the financial entity's activity due to bankruptcy or revocation of authorization to function as such, the fine that can be applied to the natural or legal persons responsible for the transgressions shall be equivalent to 20% of the highest Computable Financial Liability that the former financial entity had declared during the period in which the infractions occurred; d) In all cases, when a significant decrease in the computable financial liability of the financial entity coincided with the beginning or development of the infringing periods, the fine shall not be subject to the limitations of point 3.2. and point 3.3., subsections a), b) and c). e) When the transgression consists solely of the exercise of unauthorized financial intermediation, the highest fine imposed on the responsible parties shall equal the total sum of the monetary determinations of factors 2.2. to 2.4..

4. Recidivism:
   Those sanctioned by a final resolution who commit new infractions within the five-year period following said decision, shall have an increase of up to 40% (forty percent) in the fines imposed on them.
   In the case of second recidivism, the fines to be applied, graded according to the preceding point 3.3., may be increased by 100% (one hundred percent).